Dodd Frank Work Around..

22 Replies

The new Dodd Frank rules are presenting a bottleneck for me. The headaches of purchasing a property as an investor under the new Dodd Frank rules cost my a cash flowing property (800/mo). I would like to put as little down as possible using FHA or Conventional Financing to avoid DF period.

What is the work around?

How can I purchase a SFR as a personal asset and convert it into my LLC?

  • conventional/FHA loan and assign it to LLC at the table
  • conventional/FHA loan and quit-claim to LLC

How can this be done with as little out of pocket money?

@Bill Gulley

My LLC is fairly new (11/13) and does not have a credit history nor Sched C. I also like the option of putting 3.5-5% down for the same property.

Is this possible to take advantage of this? or am I stuck putting down 10-25% ...

Your issue has nothing to do with Dodd Frank. I think you are asking how to buy a property under the deception you are buying as an owner occupant, without any intention of occupying it, so you can get in with a lower down payment, right? If so, don't try and go there. FHA is Only for owner occupants, if you didn't know.

@Al Turner - We really need more background and details/info on your question. Because as you have presented it, it appears that Dodd-Frank doesn't even apply.

Al if you are limited on cash then you might have to find the deal to find the funds with a partner.

Do not attempt OO status as it is loan fraud if you are not occupying the property. There are exceptions with documented situations after the fact where someone has to move etc. but do not use that as a work around.

We get this question many times on BP.

No legal advice

I'm still trying to figure out what the real question is here. Maybe @Brian Gibbons will see this and comment as he has some knowledge of Dodd-Frank.

Al mentions 3.5% which is FHA.

For SFR house it has to be owner occupant. Al can buy a 2,3,4, unit and live in one and rent out the others.

Al needs to understand FHA is very expensive and while less down depending on price the mortgage insurance is hundred of dollars per month or more so you have to buy cheaper versus a conventional loan where the insurance costs less.

Also with FHA you can never get rid of the mortgage insurance anymore. This might be why bringing in a partner makes more sense.

@Jay Hinrichs That was exactly my point. It's a loan fraud issue, not a problem due to any new Dodd Frank restrictions.

@Bryan L.

Ok. I see how what I am saying is confusing....let's try this.

I own a house in my name that I want to rent out and make it part of my LLC assets, what is the easiest way to deed the property to the LLC?

Here is what i am thinking:

I want to leverage the money I have saved to obtain the most properties possible. Let's say I have 20k. And instead of buying one property at 100k (20% down), I want to leverage my funds and use 3.5-5% down as owner occupied. That same 20k, would net me 5 -100k properties (@3.5%) or 4- 100k properties (@5%). I think the I can only have 4 properties max under my name and was hoping here was a loophole that would allow me buy a home as owner occupied, live in it until reno are done, then move out and shift the asset into my LLC.

Then, rinse and repeat.

That way, I will never reach the maximum of 4 properties ever. Owning one property at a time. Growing my LLC assets to 4 or 5 in a year versus 1, using my own money.

How can I do this on a continual basis, legally?

@Al Turner

unfortunately I don't believe you can do this legally,, Like Wayne said you can use FHA and move in and if there is a legit reason you need to move Like a job transfer, had to go take care of sick aunt etc etc. But to have this as a Scheme its just not going to fly,

As for transferring the asset that's as easy as filing a deed from the one entity to the other.

Regardless the mortgage stays in your name until its paid off just because you transfer title does not transfer the mortgage out of your name.

What you might want to do is focus your energy on trying to find owner carry back Seller contracts.. those you can do anything you want with and its legal. And in your neck of the woods I bet you can find them without to much difficulty.

@Jay Hinrichs

My intentions were not for it to seem like scheme...but to leverage my funds. I am glad that this site exist, and that everyone shares the knowledge.

How does owning property in another state work? Is a LLC needed in that state or can I use my current one?

@Al Turner

when buying from a private party like me or any other private party you can buy in your personal name an LLC in your state or an LLC that you set up in the state the property is in.

If your LLC is not in the state where your doing bizz sometimes you have to register as a foreign corp.. But others on this site will know that better than me.

@Al Turner As for your $20k, thinking 4 properties at $5k, realize that you'll also need closing costs and tax/insurance reserves for about 15 months, probably 5 or 6% total "closing costs". Also, you'll have to qualify for the loans based on your income, not the income from the property.

Originally posted by @Bryan L. :
I'm still trying to figure out what the real question is here. Maybe @Brian Gibbons will see this and comment as he has some knowledge of Dodd-Frank.

Dodd Frank is about Owner Occupant Seller Financing.

Investor to Investor does not apply. If you make a deal as a BUYER with and Investor NOO, you can do whatever you want re Seller Financing.

If you are financing a Tenant Buyer, and you own it, and they will live in it OO, obey the 8 item Ability to Repay Rule and see a RMLO. To be safe, do not use rent credits and use a lease and a straight option.

Now what the OP is trying to do is buy cheaply on a FHA 3.5% down payment and say you are OO when you are not? Well, that smells fishy.

@Brian Gibbons - Doesn't DF also have some exemptions? For example, if I sell only a few properties per year with owner-financing?

I recall Clint calling me to pick my brain.

Again, my advice is to contact your state department of banking or finance and explain your situation and ask if you are in compliance.

Any attorney on the internet advising on matters od seller financing that sells information, courses or other material has an agenda that should be obvious, you are not necessarily in an attorney-client relationship, so understand that any law license may not be relevant as it might be if you were being represented. No law license includes expertise in financing.

You need to get your information from the CFPB, HUD, state agencies and regulators, not off the internet from gurus, regardless of what credentials they may have personally, that Brian keeps posting.

Do not venture off in grey areas as to the number of deals you might be able to do, exemptions are clearly made and stated, if you are not clearly exempt as stated then go to a loan originator, pretty simple. :)

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